The theory of disruptive innovation was first coined and developed by Clayton Christensen in the mid-1990s. It is a concept in the field of innovation and business strategy that explains how smaller, less-established companies can disrupt and eventually replace larger, well-established businesses by introducing new products or services that initially cater to niche markets but eventually grow to dominate the industry. This theory is detailed in Christensen’s book, “The Innovator’s Dilemma.”

Here are the key components and principles of the theory of disruptive innovation:

1. Disruption vs. Sustaining Innovation: Christensen differentiates between two types of innovation: sustaining and disruptive. Sustaining innovations are incremental improvements to existing products or services, catering to the demands of existing customers. Disruptive innovations, on the other hand, initially target underserved or niche markets with simpler, more affordable, or more accessible solutions.
2. New Market vs. Low-End Disruption: Disruptive innovations can occur in two main forms. New market disruption involves creating a new market for products or services that were previously inaccessible to a majority of customers. Low-end disruption involves offering a simpler, more affordable product that initially attracts customers at the lower end of the market but eventually moves upmarket to compete with established players.
3. Overlooked Markets: Disruptive innovations often emerge in markets where existing businesses have overlooked or neglected the needs of certain customer segments, creating an opportunity for new entrants.
4. Incremental vs. Radical Innovation: Christensen’s theory suggests that established companies are often focused on sustaining incremental innovations or improving their existing products, making it challenging for them to embrace disruptive innovations that might cannibalize their existing products.
5. The Innovator’s Dilemma: The term “innovator’s dilemma” refers to the challenge faced by established companies. They often hesitate to pursue disruptive innovations because they are less profitable in the short term and may not meet the needs of their existing customers. This can lead to their eventual downfall as disruptive entrants gain traction and market share.
6. S-Curve of Innovation: Christensen’s theory incorporates the concept of an S-curve, which represents the life cycle of innovations. Established companies often focus on the upper portion of the S-curve, where incremental innovations occur. Disruptive innovations start at the lower end of the S-curve, offering a lower performance product but with a more attractive price point.
7. Incumbent Response: Established companies can respond to disruptive threats by either embracing the disruptive technology or by creating separate divisions or spin-off companies to handle disruptive innovations. However, they often struggle with these decisions, as it can involve significant risks and a shift away from their core competencies.

The theory of disruptive innovation has been influential in understanding the dynamics of competition and innovation in various industries. It emphasizes the need for established companies to be vigilant and adaptable in the face of potential disruptive threats and to consider exploring and investing in disruptive innovations themselves to maintain their competitive edge.